Paymentus (PAY) Q1 2025 Earnings Call May 05, 2025 05:00 PM ET Speaker0 Good day, and welcome to the First Quarter twenty twenty five Paymentus Holdings Earnings Conference Call. This call is being recorded. All participants are currently in listen mode only. There will be an opportunity to ask questions following management's prepared remarks. At this time, I will now turn the call over to Scott Eckstein, Investor Relations. Speaker1 Thank you, operator. Good afternoon. Welcome, and thank you for joining t ...

In addition to the GAAP financial measures presented in our consolidated financial statements, this presentation includes key performance indicators and non-GAAP financial measures that our management uses to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. There are limitations to contribution profit and margin, adjusted gross profit, non-GAAP operating expenses, non-GAAP net income, non-GAAP earnings per share, EBITDA, adjusted E ...

Group 1: Visa - Visa reported a 9% increase in revenue and a 10% increase in non-GAAP EPS for its fiscal second quarter of 2025, with payment volumes up 8% and processed transactions rising 9% [3][7] - Year-to-date, Visa's stock is up over 8%, significantly outperforming the financial sector and the S&P 500 [4] - The company generated $9.42 billion in free cash flow in the first half of fiscal 2025, supporting stock repurchases of $8.41 billion and dividends of $2.33 billion [6] - Visa is guiding for low-double-digit net revenue growth and a low teens increase in diluted EPS for the full fiscal year [7] - The stock has a P/E ratio of 34.4, above its 10-year median of 33.1, which is considered justified given the company's performance [8] Group 2: Kenvue - Kenvue's stock currently yields 3.5% and presents a value opportunity in a relatively safe industry, with management focused on turning around its underperforming skin health and beauty segment [9][10] - The skin health segment's recovery is slower than expected, with organic sales declining by 1.9% in 2024, although Neutrogena regained its No. 1 position in the U.S. face care group [11] - Other segments, including self-care and essential health, grew organic sales by 1.9% and 4.1% respectively in 2024 [12] - Kenvue is collaborating with activist investor Starboard Value to appoint new board members, indicating a commitment to improving performance [12][13] Group 3: Essential Utilities - Essential Utilities offers a 3.2% forward yielding dividend, making it an attractive option for conservative investors during market volatility [14] - The company provides water and wastewater services to 1.1 million customers, with 99% of its earnings attributed to these services, which are less likely to be affected by economic downturns [15] - Operating in regulated markets allows Essential Utilities to guarantee certain rates of return, aiding in future cash flow management [16] - The company has increased its dividend payout for 30 consecutive years, with a 7% compound annual growth rate over the past decade [17][18]

Core Insights - Visa has demonstrated strong financial performance, with a 9% revenue increase to $9.6 billion in Q2 2025, driven by an 8% rise in payment volume totaling $3.9 trillion [3][7] - The company benefits from a long-term trend towards electronic payments, which enhances its growth potential and provides insulation from inflation impacts [5][6] - Visa's profitability is notable, achieving a 48% net income margin on its revenue, supported by a scalable payment platform with minimal capital expenditures [7] - The company possesses a wide competitive moat, with over 150 million merchants and 4.8 billion active cards globally, creating a powerful network effect [8][9] - Visa's market capitalization stands at $660 billion, indicating strong market recognition of its performance, although its shares trade at a price-to-earnings ratio of over 34, suggesting it may be fully valued [10][11] Financial Performance - Visa's revenue for Q2 2025 reached $9.6 billion, marking a 9% increase year-over-year [3] - The net income for the same quarter was $4.6 billion, resulting in a 48% profit margin [7] Market Position - Visa is well-positioned in the global economy, benefiting from the shift to electronic payments and a robust network of merchants and cardholders [5][8] - The company is largely insulated from competition unless a significantly superior payment network emerges [9] Investment Considerations - While Visa is recognized as a leading company, its current valuation may not present immediate buying opportunities, as it trades at a price-to-earnings ratio consistent with historical averages [10][11] - Investors may consider dollar-cost averaging into Visa stock over time to build a position in this resilient business [12]

Core Viewpoint - JP Morgan analyst Tien-tsin Huang maintains an Overweight rating on Mastercard Inc. with a price target of $610, reflecting confidence in the company's growth potential and performance metrics [1][7]. Financial Performance - Mastercard reported fiscal first-quarter net revenues of $7.25 billion, a 14% increase, surpassing the analyst consensus estimate of $7.12 billion [1]. - Adjusted EPS rose 13% to $3.73, exceeding the analyst consensus estimate of $3.57 [1]. - Revenue yield was approximately 0.9 basis points ahead of expectations and increased by two basis points year-over-year, supported by acquisitions, currency volatility, and pricing [1]. Growth Outlook - The company anticipates mid-teens net revenue growth for the second quarter, compared to the $7.78 billion consensus estimate [4]. - For fiscal 2025, Mastercard expects low teen-digit revenue growth, against a consensus estimate of $31.51 billion [4]. - Huang projects rounded 12% foreign exchange neutral or organic revenue growth in 2025, with a slight decrease to 11% for 2026 [6]. Market Trends - Despite a leap year causing expected deceleration in volume growth, Mastercard achieved stable, mid-teens organic revenue growth in the first quarter [2]. - Cross-border growth decelerated slightly more than anticipated but remains comfortably in the mid-teens, with management expressing optimism about diversifying the high-margin cross-border business [3]. Pricing and Valuation - The price target of $610 is based on a 33 times multiple of Huang's calendar 2026 EPS, aligning with the current next-twelve-months multiple and ahead of its three-year average [7]. - The analyst noted that this multiple is justified by Mastercard's premium growth and pricing actions that mitigate near-term foreign-exchange-neutral or organic estimates [7]. Stock Performance - Mastercard's stock is currently up 1.96% at $557.09 [8].

Core Insights - SoFi Technologies (SOFI) reported strong first-quarter 2025 results, with earnings and revenues exceeding expectations, yet the stock declined by 5.7% post-release [1] Financial Performance - Quarterly earnings were six cents per share, surpassing the consensus estimate by 100% and increasing 200% year over year [1] - Revenues reached $770.7 million, exceeding the consensus by 3.8% and rising 19.5% year over year [1] - The Financial Services segment generated net revenues of $303.1 million, more than doubling year over year [2] - The Technology Platform and Lending segments reported revenues of $103.4 million and $413.4 million, reflecting increases of 10% and 25% year over year, respectively [2] Loan Platform Contribution - The Loan Platform Business contributed $96.1 million to consolidated adjusted net revenues, with $92.8 million from originating $1.6 billion in personal loans and $3.3 million from servicing cash flow [3] Margin Analysis - Adjusted EBITDA for the quarter was $210.3 million, a 46% increase from $144.4 million in the prior year, with an adjusted EBITDA margin of 27%, improving by 200 basis points year over year [4] Balance Sheet and Cash Flow - SoFi ended the quarter with cash and cash equivalents of $2.1 billion, down from $2.5 billion in the previous quarter [5] - Operating cash for the quarter was $59 million, with capital expenditures of $12.4 million and $61 million paid out in dividends [5] 2025 Guidance - For the full year 2025, SoFi expects revenues between $3.24 billion and $3.31 billion, lower than the Zacks Consensus Estimate of $3.36 billion [6] - Adjusted EBITDA is projected to range from $875 million to $895 million, above prior guidance [6] - EPS guidance for 2025 is now between 27 and 28 cents per share, exceeding previous guidance and the Zacks Consensus Estimate [6] Q2 2025 Expectations - Management anticipates adjusted net revenues of $785 million to $805 million for Q2 2025, with adjusted EBITDA forecasted at $200 million to $210 million [7] - EPS for Q2 is expected to be in the range of 5 to 6 cents per share, aligning with the higher end of the Zacks Consensus Estimate [7]

Core Insights - Contactless payments are increasingly popular, with 73% of Mastercard's face-to-face switched transactions being contactless, indicating strong consumer adoption [1][3] - Despite concerns over tariffs and geopolitical tensions, consumer spending remains fundamentally strong, supported by low unemployment and wage growth outpacing inflation [3][6] - Cross-border transaction volumes increased by 15% overall and 16% in April, reflecting growth in both travel and non-travel related spending [5][6] Group 1: Financial Performance - Gross dollar volumes rose by 9% to $2.4 trillion, with credit and debit spending in the U.S. increasing by 7% overall [2] - The CEO noted that 85% of Mastercard's value-added services and solutions revenues are recurring, highlighting a stable revenue stream [4] - The company expects net revenues to grow at the "high end" of low teens percentage points, supported by healthy consumer metrics [6] Group 2: Market Trends - The use of AI in fraud detection has improved, identifying 40% more payment fraud compared to the previous year [4] - Mastercard Move has experienced a 35% growth in transactions, driven by use cases in the gig economy [4] - The shift from cash and checks to digital payments is a powerful secular trend that is expected to continue regardless of economic fluctuations [9] Group 3: Consumer Behavior - The CEO emphasized that consumer engagement remains strong, with consumers utilizing digital tools for spending decisions [9] - There is no significant trend of "upfronting" spending observed, indicating stable spending patterns in the U.S. [9] - The company anticipates that consumers will continue to value experiences, which will drive spending [9]

Core Insights - MasterCard reported revenue of $7.25 billion for the quarter ended March 2025, reflecting a year-over-year increase of 14.2% and exceeding the Zacks Consensus Estimate of $7.12 billion by 1.81% [1] - The company's EPS for the quarter was $3.73, up from $3.31 in the same quarter last year, surpassing the consensus estimate of $3.57 by 4.48% [1] Financial Performance Metrics - Switched transactions totaled 40.1 billion, slightly below the six-analyst average estimate of 40.29 billion [4] - Worldwide purchase volume across all MasterCard programs reached $1,993 billion, compared to the average estimate of $2,043.36 billion [4] - Purchase volume in Canada was $58 billion, under the average estimate of $62.68 billion [4] - APMEA purchase volume was $437 billion, below the four-analyst average estimate of $450.92 billion [4] - U.S. purchase volume was $699 billion, slightly below the average estimate of $701.01 billion [4] - Latin America purchase volume was $148 billion, compared to the average estimate of $162.67 billion [4] - European purchase volume was $651 billion, under the average estimate of $663.57 billion [4] - Gross dollar volume in APMEA was $587 billion, compared to the average estimate of $591.65 billion [4] - Canadian gross dollar volume was $60 billion, below the average estimate of $64.95 billion [4] - European gross dollar volume was $805 billion, under the average estimate of $840.75 billion [4] - Latin America gross dollar volume was $202 billion, compared to the average estimate of $224.13 billion [4] - Worldwide gross dollar volume, excluding the United States, was $1,653 billion, below the average estimate of $1,721.48 billion [4] Stock Performance - MasterCard shares returned +0.1% over the past month, while the Zacks S&P 500 composite declined by -0.7% [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the broader market in the near term [3]

Core Viewpoint - Global Payments (GPN) is expected to report quarterly earnings of $2.68 per share, reflecting a 3.5% increase year-over-year, with revenues projected at $2.2 billion, a 0.7% increase compared to the previous year [1]. Earnings Estimates - Over the last 30 days, the consensus EPS estimate has been revised downward by 2.2%, indicating a collective reassessment by analysts [2]. - Changes in earnings estimates are crucial for predicting investor reactions, as empirical studies show a strong correlation between earnings estimate revisions and short-term stock performance [3]. Revenue Projections - Analysts estimate 'Non-GAAP Revenues - Merchant Solutions' at $1.68 billion, a year-over-year change of +0.1% [5]. - 'Non-GAAP Revenues - Issuer Solutions' is projected to reach $528.21 million, indicating a +2.4% change year-over-year [5]. - The average estimate for 'Revenues - Issuer Solutions' is $607.50 million, suggesting a +0.8% change year-over-year [5]. Geographic Revenue Insights - 'Revenues - Merchant Solutions' is estimated at $1.82 billion, reflecting a -0.5% change year-over-year [6]. - 'Geographic Revenue - Europe' is forecasted to be $399.04 million, indicating a +3.7% change year-over-year [6]. - 'Geographic Revenue - Americas' is expected to reach $1.95 billion, showing a -1.4% change from the prior year [6]. - 'Geographic Revenue - Asia Pacific' is projected at $60.09 million, indicating a -0.4% change year-over-year [7]. Operating Income Estimates - The consensus for 'Non-GAAP Operating Income - Merchant Solutions' stands at $802.11 million, compared to $790.41 million reported in the same quarter last year [7]. - 'Non-GAAP Operating Income - Issuer Solutions' is estimated at $246.04 million, up from $241.40 million in the previous year [8]. - 'Operating Income - Merchant Solutions' is expected to be $599.26 million, compared to $580.44 million reported last year [8]. - 'Operating Income - Issuer Solutions' is projected at $109.78 million, compared to $106.10 million in the same quarter last year [9]. Stock Performance - Shares of Global Payments have declined by -23.4% over the past month, contrasting with the Zacks S&P 500 composite's -0.7% change [9].

Financial Data and Key Metrics Changes - The company reported revenue of $636.6 million for Q1 2025, a decrease of 2.5% year over year, with adjusted net income per diluted share at $3.51, an increase of 1.4% compared to the same quarter last year [8][30][31] - Excluding the impact of fluctuations in fuel prices and foreign exchange rates, Q1 revenue was down 0.8% compared to the prior year, while adjusted EPS grew 5% [9][30] Business Line Data and Key Metrics Changes - **Mobility Segment**: Revenue declined 1.5% year over year, impacted by lower fuel prices and foreign exchange rates. Same store sales growth for local fleets was down 3.9%, while over-the-road customers saw an uptick of approximately 2.6% [12][30] - **Benefits Segment**: Total revenues rose 4.2% year over year, with SaaS account growth of 6.1%. The company managed over 21 million SaaS accounts, and HSA accounts grew by 7% [14][31][16] - **Corporate Payments Segment**: Revenues declined 15.5% year over year, primarily due to customer transitions to a new operating model. However, direct accounts payable volume grew nearly 25% compared to last year [19][32] Market Data and Key Metrics Changes - The company operates in three segments: Mobility (50% of total revenue), Benefits (30%), and Corporate Payments (20%). Each segment is positioned for long-term growth despite macroeconomic uncertainties [10][19] - The Mobility segment's transaction levels were slightly down due to external factors, including weather events, while the Benefits segment showed resilience during economic downturns [12][17] Company Strategy and Development Direction - The company is focused on balancing long-term investments with responsiveness to near-term macro dynamics, maintaining high customer retention rates, and leveraging its diversified segments to navigate economic uncertainties [6][7][24] - Incremental investments are being made across all segments, particularly in mobility, with a multichannel marketing strategy targeting small business customers [24][25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's competitive position and ability to adapt to changing macroeconomic conditions, emphasizing the importance of customer engagement and proactive planning [6][28] - The company expects revenue for Q2 2025 to be in the range of $640 million to $660 million, with adjusted net income EPS between $3.6 and $3.8 per diluted share [37][38] Other Important Information - The company returned $790 million to investors through share repurchases, reducing share count by approximately 13.1% since the end of the previous year [33] - The leverage ratio ended the quarter at 3.5 times, at the high end of the long-term range [33] Q&A Session Summary Question: Impact of tariff policy on Mobility segment - Management noted that local fleets experienced a decline in same store sales due to weather and economic factors, while over-the-road business saw a positive trend [46][48] Question: Corporate Payments segment performance - Management indicated that about half of the corporate payments revenue is outside of travel, with some softness in discretionary spending observed [50][53] Question: Composition of Mobility segment revenue - The majority of the Mobility segment revenue comes from local fleets, with a mix of small and large customers, and same store sales trends were largely homogeneous across different sectors [56][58] Question: Credit exposure and risk management - Management expressed confidence in the company's credit tools and strategies, indicating a better position going into potential economic downturns compared to previous cycles [75][78] Question: Benefits segment growth potential - Management highlighted strong HSA account growth and competitive positioning in the benefits market, with expectations to outgrow the overall market [83][85] Question: Portfolio review and cross-selling initiatives - Management confirmed ongoing reviews of the business portfolio and noted successful cross-selling activities between mobility and benefits segments [106][108]